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Managing In Times of Failures
Released by: The Edge
Date: 26 November 2007
Over the years I have had the opportunity to undertake challenging recovery assignments to help businesses, companies and government organisations that were impeded, financially sick or terminally ill to turn around, prepare for sale or merger and acquisition. Company in need of transformation and turnaround usually falls into two main categories - those that are still profitable but whose growth
and profitability had stagnated or was starting to fall, and those that have been making losses for some time and are rapidly losing financial and operational strength.
Those companies that were seriously in trouble had to do crisis management while those were successful but found themselves in the rut - not growing and losing profitability - required transformational or incremental improvement management through re-structuring, re-engineering, re-inventing, re-positioning and/or rebuilding their strategies and business models.
I have found what causes companies go bust - a lack of MANAGEMENT LEADERSHIP, where often the business has been neglected and are not leader-driven. Organisations and companies in financial difficulties are often found wanting in their executive leadership and commitment. A business fails because its people - the leader and his team - have failed, not the business or the organisation per se.
Think of how to destroy your business
In managing for sustainable success, don't just do the STEP, SWOT and critical (competing) factors analysis to assess strategic options, formulate strategies and take actions and measures to grow. It is also good to challenge your management team to think how one could destroy the business. By putting your company in such a situation, your management team and you would be able to identify your
blind spots and formulate a line of defence to strengthen your business. This concept of "creative destruction" has been adopted by such dynamic and fast- growing companies as Microsoft and General Electric.
During an exercise I conducted at a strategic planning workshop for an organisation which I was asked to turnaround, the following were pointed out as some main causes of corporate failures.
Customership
- Neglecting customers' complaints and voices;
- Not improving or developing your product or services;
- Not engaging your suppliers or customers; and
- Not worrying about new competitors or the discontented competitors.
Finance
- Delaying and neglecting chasing and tracking the collection of your debts;
- Not managing your cash flows and credit availability;
- Not having financial reserves; and
- Spending your profits before they are realised.
People
- Not spending money on training and developing your people;
- Tolerate mediocrity;
- Not engaging your people and ignore the need for leadership;
- Keeping people in the dark on a need-to-know basis; and
- Not rewarding or recognising your people.
Technology & Systems
- Not investing in technology and modernising production;
- Overlook the need to set up systems and processes that ensure increase in productivity; and
- Disregarding quality and continuous improvement.
Strategy
- Dispensing with business planning and strategic management;
- Paying no heed to short and long term strategies; and
- Not trying to see the future, only focusing on the present.
If you as a management leader, allow the neglect, indifference and omissions mentioned above to happen, intentionally or unintentionally, the subsequent result would be business failure. Many business and companies fail due to sheer neglect, complacency, disregard of external factors and competition. Lack of visionary leadership, innovation, dynamic strategies, and loss of energy and drive in the
founder leader or the management team exacerbate the situation. The company then goes into a tailspin.
Causes of corporate failure
- Founder / CEO and management leader loses the vision, passion and commitment
Once the company has established itself, is doing well and making profit, there is a tendency to become complacent. Sometimes, quick success can also make the founder entrepreneur and management leadership arrogant or indifferent, leading to business blind spots and vulnerabilities. The leadership role starts to weaken and the company moves into an ageing and decline mode. Not understanding how to
manage and rejuvenate the company at the various growth stages is a recipe for failure.
- No strategic planning or short term and long term strategies
Research has shown that most companies without a well-developed strategic plan land themselves in trouble. As there is no long term plan and future direction, companies may find themselves in the dangerous situation of running very fast in the wrong direction.
- Lack of a distinctive business capability and core competency
Strong and resilient companies find that over the growth period, they develop a distinctive competency in doing their business. They have something unique to really differentiate their business and they continue to value innovate their business. Companies that have not created their distinctive business capability and core competency will often be reactive rather than proactive to business
pressures and opportunities. This distinctive capability will differentiate you from the crowd of competitors.
- Business blind spots
The trouble with managing a business is that the pressure on your time and attention makes you somehow bypass or make excuses to overlook your business blind spots. Often, you know that it is important to fix the problem of risk exposure but because of time constraints and more urgent matters, you put off the task, until they escalates into real problem. Then you start to fight the fire. Another
blind spot is ignoring the opinions and concerns of customers and stakeholders. Organisations that are complacent and inward-looking and cannot identify their blind spots may see their business destroyed overnight.
- Complacency and indifference
When an organisation becomes successful, it forgets the hard work and drive that it had started out with and tends to become complacent. The hunger for success drops, with employees just wanting to take it easy and enjoy the fruits of their hard labour. This leads to indifference and lack of commitment to the overall growth and continued success of the business. Complacency is a symptom of poor
and lacklustre management leadership. It becomes a mindset and attitude issue and once it sets in, the organisation is on its way towards corporate decline.
- Loss of talent and teamwork
It is key to recruit, develop and retain talented and well-performing people for continued business growth. When a company has `A' graders, there is a natural hype, dynamism and excitement in the organisation. It is when they leave the organisation and the company is left with the `B' and `C' graders that the energy and dynamism seems to fizzle out. The net effect of talent loss is that there is a
deterioration of work vigour, teamwork and shared commitment.
- Lack of innovation and creativity
With globalisation, commoditisation and technological change phenomena, companies that wish to move ahead must be creative and innovative in all aspects of its operations and strategies. They must pay heed to the concept of `creative destruction', which means they have to assess what products and processes they have to reduce or eliminate and what innovative value they have to create or add for
their customers.
- Lack of succession planning
People don't last forever. However organisations and businesses can last in perpetuity. One just has to look at global companies like Coca-Cola, General Electric, Ford, Microsoft, Procter & Gamble, Toyota, Panasonic, Phillips, Shell and closer to home, Petronas, Sime Darby, Boustead, ASTRO, VADS, Maybank and Selangor Pewter. These companies will continue to grow and they remain ever conscious of
continuity. Great companies always seem to do their succession planning well and with ease.
Companies that have attained success should not be lulled into complacency - the nine traps of success (as outlined by Robert Herbold, Seduced by Success) can come knocking. Find out how to avoid these traps by booking your place at the National Management Conference themed "Honouring Legacy: Creating the Future with Management Leadership" organised by MIM featuring Robert Herbold as our keynote
speaker on the 5 December 2007 at the Mandarin Oriental, Kuala Lumpur.
Dr Wilson Tay is CEO of the Malaysian Institute of Management, the national management organisation of Malaysia. MIM invites companies and professional managers to be members. Contact MIM Membership Support and Outreach at (603) 2164 5255; fax (603) 2165 4681; e-mail: enquiries@mim.org.my or visit www.mim.org.my
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